‘Rubber stamp’ debt collection
Some lenders have tried to get courts to ‘‘rubber stamp’’ inflated debts when they know debtors won’t turn up in court to defend themselves, the High Court in Auckland has found.
Justice Sarah Katz released her judgement in an appeal brought by credit card company Diners Club.
Evidence from the Commerce Commission showed some lenders had taken advantage of the court system when they believed debtors would not contest the claim.
‘‘I note the Commission provided examples of lenders who have sought (and sometimes obtained) judgment by default for amounts that were incorrect, and others that have actively sought to improperly use the judgment by default procedure to their own advantage,’’ Justice Katz said.
Lenders can apply for a court order to recover an unpaid debt.
A formal hearing to check whether a debt is correct, and the lender has not acted oppressively, only routinely happens when a debtor defends against the claim.
But sometimes court registrars query the size of the debt claimed and refer the case to a judge.
In a claim by Diners Club against a Richard Leslie Brooker, who had failed to repay credit card and personal loan debts, a District Court registrar considered ‘‘the collection costs and the duration of the interest claimed to be oppressive’’.
A judge set the case down for a formal hearing.
Diners Club ‘‘took issue’’ with the decision not to enter a default judgement, and appealed to the High Court that the District Court did not have the jurisdiction to intervene and set down a formal hearing.
But Justice Katz said Diners Club’s interpretation would require courts to grant judgements in lenders’ favour ‘‘no matter what the circumstances are, or how blatantly oppressive the terms of the credit contract might appear to be’’.
‘‘Such an interpretation rests uneasily with the statutory focus on consumer protection,’’ she said.
Diners Club argued borrowers could adequately protect their own interests without the court’s intervention.
But Justice Katz said evidence from the commission ‘‘clearly demonstrates that borrowers cannot reasonably be expected to protect their own interests under the CCCFA (Credit Contracts and Consumer Finance Act)’’ as a wide range of factors prevented borrowers from challenging oppressive contracts.
These included lack of money, little knowledge about their rights, uncertainty about what they owed, and fear of angering a lender on whose good will they depended.
Some debtors were also unaware that proceedings had been filed against them.
Most complaints the commission received about oppressive lending practices were not initiated by borrowers, but by community law budget advisers.
This ‘‘speaks volumes about the efficacy of borrowers themselves holding lenders to account’’, Justice Katz said.
Diners Club also argued that the commission’s legal power to intervene in any court proceedings brought under the CCCFA were ‘‘an adequate safeguard for borrowers’’ making it unnecessary for the District Court to intervene.
But Justice Katz found legal hurdles, such as having to seek the court’s permission to intervene in a case, limited its ability to intervene in a large number of cases.
The commission had so far done so in two cases.
‘‘As a consequence, the commission’s powers under the CCCFA are not an adequate substitute for the ability of the District Court itself to consider, where appropriate, whether issues of oppression arise in a particular case,’’ Justice Katz said.
Knowing the courts could decide to hold formal hearings in undefended cases ‘‘incentivises plaintiffs to be scrupulous and vigilant regarding the accuracy of their claims, knowing that they cannot simply rely on the Court to be a ‘rubber stamp’’’, she said. centres and